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Warrant Coverage

What is 'Warrant Coverage'

An agreement between a company and its shareholders whereby the company issues warrants equal to some percentage of the dollar amount of the shareholder's investment.

Explaining 'Warrant Coverage'

For example, if an investor purchases 1,000,000 shares of stock at a price of $5 per share (a $5,000,000 investment), and the company grants 20% warrant coverage, the company issues to the investor $1,000,000 in warrants or, in technical terms, warrants 200,000 additional shares at an exercise price of $5 per share.

This would not give the investor any additional downside protection as the underlying shares would be issued at the same price that is currently paid for the stock. However, the warrant coverage would give the investor additional upside in the event that the company goes public or is sold at a price above $5 per share.


Further Reading


Warrants pricing: stochastic volatility vs. Black–Scholes
www.sciencedirect.com [PDF]
… Specifically, the warrant data set was originally obtained from Taiwan Economic Journal … Table 1. Features of the covered warrants data used in this study … Newly adjusted striking price (adjustment day), Newly adjusted number of shares that can be purchased with each warrant …

Expiration effects of covered warrants in ChinaExpiration effects of covered warrants in China
www.tandfonline.com [PDF]
… Specifically, the warrant data set was originally obtained from Taiwan Economic Journal … Table 1. Features of the covered warrants data used in this study … Newly adjusted striking price (adjustment day), Newly adjusted number of shares that can be purchased with each warrant …

Stock purchase warrant and ius development in China <span style=[J]' src='/thumbnails/?img=http%3A%2F%2Fen.cnki.com.cn%2FArticle_en%2FCJFDTotal-SDLL200606000.htm' />Stock purchase warrant and ius development in China [J]
en.cnki.com.cn [[J]' href='https:/api.miniature.io/pdf?url=en.cnki.com.cn%2FArticle_en%2FCJFDTotal-SDLL200606000.htm'>PDF]
… Specifically, the warrant data set was originally obtained from Taiwan Economic Journal … Table 1. Features of the covered warrants data used in this study … Newly adjusted striking price (adjustment day), Newly adjusted number of shares that can be purchased with each warrant …

Analysis on Hedging Strategy for the Covered WarrantsAnalysis on Hedging Strategy for the Covered Warrants
en.cnki.com.cn [PDF]
… Specifically, the warrant data set was originally obtained from Taiwan Economic Journal … Table 1. Features of the covered warrants data used in this study … Newly adjusted striking price (adjustment day), Newly adjusted number of shares that can be purchased with each warrant …

Financing under extreme risk: Contract terms and returns to private investments in public equityFinancing under extreme risk: Contract terms and returns to private investments in public equity
academic.oup.com [PDF]
… Specifically, the warrant data set was originally obtained from Taiwan Economic Journal … Table 1. Features of the covered warrants data used in this study … Newly adjusted striking price (adjustment day), Newly adjusted number of shares that can be purchased with each warrant …

A comprehensive study of the Chinese warrants bubbleA comprehensive study of the Chinese warrants bubble
papers.ssrn.com [PDF]
… Specifically, the warrant data set was originally obtained from Taiwan Economic Journal … Table 1. Features of the covered warrants data used in this study … Newly adjusted striking price (adjustment day), Newly adjusted number of shares that can be purchased with each warrant …

Anchoring bias in the TARP warrant negotiationsAnchoring bias in the TARP warrant negotiations
www.sciencedirect.com [PDF]
… Specifically, the warrant data set was originally obtained from Taiwan Economic Journal … Table 1. Features of the covered warrants data used in this study … Newly adjusted striking price (adjustment day), Newly adjusted number of shares that can be purchased with each warrant …



Q&A About Warrant Coverage


Is there any downside protection with warrant coverage?

No, there is no downside protection with warrant coverage because you have to pay for it by receiving fewer shares when you buy your original investment.

What would happen if you bought stocks at 5 per share and received 2% warrant coverage?

You would get additional shares for free in case the stock price goes up. However, if the stock price goes down, nothing happens.

What is warrant coverage?

Warrant coverage is an agreement between a company and its shareholders whereby the company issues warrants equal to some percentage of the dollar amount of the shareholder's investment.

How does warrant coverage work?

The investor will receive additional shares for free in case the stock price goes up. However, if the stock price goes down, nothing happens.

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